Manufacturing output surprised the crowd with an upbeat number in today’s ISM Manufacturing report for October. This cyclical slice of the US economy expanded a slightly faster rate last month, according to ISM’s index, leaving this benchmark at 56.4–its highest level in 2-1/2 years. That’s something of a shock vis-a-vis the consensus forecast, which warned of a substantial decline for this benchmark to 55.0. That overall prediction from economists contrasts with yesterday’s econometric projection on these pages that anticipated a steady reading for today’s October’s release by way of a slight uptick to 56.3.
Major Asset Classes | October 2013 | Performance Review
October has a reputation for trouble when it comes to market behavior, but you wouldn’t know it from looking at last month’s numbers. There was minimal turbulence in asset prices in October. Aside from commodities, the major asset classes posted another solid batch of gains, building on September’s bull run. The Global Market Index (GMI) posted a 2.8% increase last month, leaving it higher on the year by a solid 12.0%.
New Unemployment Claims Fall Again
It’s Halloween, but there are no goblins in today’s labor market report. New filings for unemployment benefits fell again last week, slipping 10,000 to a seasonally adjusted 340,000. That’s still at an elevated level relative to recent history, but we’re again moving in the right direction. The data glitches that harassed this series over the past month or so are receding. In turn, we’re left with the encouraging sight of claims returning to a downward trend, or so it appears. Exhibit A is the 7% year-over-year decline in claims for the week through October 26. That’s the biggest slide since late-September and it suggests that the labor market, although wobbly these days via recent updates on payrolls, continues to grow.
ISM Manufacturing Index: October 2013 Preview
The ISM Manufacturing Index is expected to increase marginally to 56.3 in tomorrow’s October update (scheduled for release on November 1), based on The Capital Spectator’s average econometric forecast. The estimate reflects a trivial rise from the previously reported 56.2 for September. Meanwhile, the Capital Spectator’s average projection is substantially higher than three consensus forecasts for September via surveys of economists. Indeed, all three surveys project that today’s ISM number will decline sharply vs. the previous month.
ADP: Slower Payrolls Growth In October
Payrolls increased this month by the smallest amount since April, according to this morning’s update of the ADP Employment Report. The 130,000 gain for October is near the slowest pace of growth in recent years for this data series and so today’s release raises new concerns for the economy’s outlook. “Any further weakening would signal rising unemployment,” says Mark Zandi, chief economist of Moody’s Analytics, which partners with ADP to produce the payrolls data. “The weaker job growth is evident across most industries and company sizes,” he notes in a press release (pdf) that accompanies today’s report.
A Drop In Auto Purchases Pinches Retail Sales In September
If you ignore the 2.2% decline in auto sales last month, today’s update on September retail sales looks ok. But cherry-picking the numbers offers a thin if not misleading veil of comfort at the moment. Indeed, the year-over-year change in retail spending dipped last month to a rate that’s close to the slowest pace in three years. Is this a sign of trouble? No one really knows at this point. It’s possible that all the talk last month of a government shutdown and the possibility of a Treasury default skewed the data. Some optimists also reason that the relative shortage of shopping days last month is a factor. Deciding what’s really going on will take a few more monthly updates to sort it all out. Meanwhile, there’s enough weakness in today’s data if you include auto numbers to keep the crowd wondering what happens next.
There’s Nothing “Regular” About The Business Cycle
I’m reluctant to disagree with a newly minted Nobel laureate in economics, but I just can’t let Robert Shiller’s remark about the business cycle pass without comment. “The world economy is softening a bit,” he told Yahoo Finance yesterday. “There’s always a chance of another recession. It’s been six years since the last recession started — they tend to come along with some regularity.” Regularity? Well, actually that’s the wrong word to use on this subject for a simple reason: there’s nothing regular when it comes to the timing of recessions.
Industrial Output Picks Up But Manufacturing Is Soft
Industrial production beat expectations and increased 0.6% in September vs. August, the best monthly comparison since February, the Federal Reserve reports. The year-over-year change turned higher as well, with output expanding 3.2% last month vs. a year earlier—the biggest annual gain since last November. But the upside surprise was due mostly to factors other than manufacturing, which rose a sluggish 0.1% last month. Is the mismatch a sign of trouble ahead? When ever the cyclically sensitive manufacturing sector wobbles, there’s always room to wonder about what comes next. It’s too early to say, of course, although today’s mixed report won’t be easy to dismiss until or if we see better numbers in the economic updates to come, starting with tomorrow’s delayed retail sales numbers for September.
Where’s Inflation When You Need It? Or Do We Need It?
Some economists say that more inflation is (still) just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment. A New York Times article over the weekend advises that “as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough.”
An Afternoon Of Asset Allocation In New York
I’ll be attending the half-day conference on “The Evolution of Active Asset Allocation” in New York on Tuesday, Oct. 29. Maybe you should too? The price is certainly affordable: free, in fact, courtesy of S&P Dow Jones Indices. Even better, the lineup of speakers and topics looks intriguing. What’s the catch? You’ve got to register in advance. I’m particularly interested in the final session: “Ideas and Innovations in Asset Allocation using ETFs”.